Tough Call For BOE
Today’s Bank of England meeting is drawing a great deal of attention and has the potential to cause significant price action swings in GBP-based pairs and UK asset prices. On the back of the BOE surprising the market when it failed to lift rates in November and with the emergence of omicron as a fresh threat in the UK, there is a great deal of uncertainty and speculation around how the bank will act.
On the one hand, with inflation hitting 5%, levels not seen for a decade, there is a huge urgency to relieve price pressure on consumers. On the other hand, in light of the fresh restrictions around omicron, the huge blow this will strike to the economy and the risk of further restrictions in the near future, the BOE is no doubt hesitant to tighten liquidity conditions for consumers and businesses alike.
If the BOE does push ahead and hike today, this will be a firm boost for GBP near term and will restore some of Bailey’s credibility following his “unreliable boyfriend” behaviour in November. On the other hand, if the BOE holds off, citing uncertainty around omicron, this will no doubt be met with a wave of GBP selling.
Technical Views
GBPUSD – Bullish scenario
With USD on the backfoot today, a hawkish BOE meeting would no doubt fuel a breakout here. Plenty of bullish divergence in momentum studies recently suggesting reversal risks, along with the retail long position reducing further as GBO points higher. Bulls can look for a break of 1.3349 targeting 1.3461 initially and the channel top/1.3676 thereafter.
GBPAUD – Bearish scenario
If GBP bulls are lift empty handed today, particularly if the BOE sounds the alarm bells over omicron, this will weigh on GBP sharply. Near term, this GBP weakness is likely to create fresh downside opportunities in GBPAUD with a break of the 1.8438 level ( bear channel retest, bull trend line break) opening the way for a test of 1.8316 and 1.8132 thereafter.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.